Loan Origination Fee less than 1% of mortgage amount: 1 point for tax deduction purposes?

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I bought a house last year and paid about $ 150 less than 1% of the mortgage amount as a loan origination fee. Now that I am preparing my tax return, does this fee count as a point paid? Are partial points allowed? What should I do?

  1. Reply
    Gaytheist Buddha
    February 11, 2011 at 6:17 am

    No, only buy down points spent to get a lower interest rate. Loan origination points and fees are not deductible but can be added to that basis price of your purchase for determining capital gains taxes when you sell years from now.

  2. Reply
    February 11, 2011 at 7:17 am

    I think so since it is pre paid interest

  3. Reply
    Brian A
    February 11, 2011 at 8:02 am

    Was the fee charged as a percentage of the loan amount or was it coincidentally about $ 150 less than 1%? If it wasn’t expressly calculated as a percentage (or fraction of a percentage) then it isn’t deductible.

    See IRS Form 530 linked below.

  4. Reply
    February 11, 2011 at 8:15 am

    Points are calculated as 1 point = 1%. So it would equal a 1% upfront interest charge. It takes 8 points to drop an interest rate 1%. The following is the table for figuring it all out.
    1% = 8pts
    3/4% = 6pts
    1/2% = 4pts
    1/4 = 2pts
    Basically buying a point isn’t going to change your interest rate, you would need to buy at least 2 to see a reduction.

  5. Reply
    February 11, 2011 at 8:16 am

    A point is pre-paid interest and yes, 1 point = 1% of the loan amount which is often referred to as a “discount point”.

    However, the discount point and the rate reduction are not necessarily a 1 for 1 ratio. It depends on the particular program you have applied for and current market conditions.

    The only way to truly know how much your 1% discount point will buy down the rate is to call your Loan Officer and have him/her price it out for you.

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